Federal Student Loan Consolidation
Students often take out a number of loans in order to pay the cost of higher education, which leads to making multiple loan repayments each month. Each of the loans have different repayment deadlines, payment amounts and other terms and conditions, which often leads to an unmanageable situation and to students defaulting. For borrowers who find it difficult to make more than one monthly payment, they can get in touch with a financial intermediary and consolidate their loans into one, which allows them to not only make one monthly payment at a single point in time per month, but also to make payments with lower interest rates. Students can also ask the consolidator to increase the number of payments so that the amount of each payment reduces.
Federal consolidation student loan programs are popular with students who are unable to secure a single loan for their education plan. In such cases, students often apply for other federal financial aid programs to ensure their cost of education is covered before they enroll in their degree program. Applying for federal loans is the best option, since these loans offer the lowest interest rates and have relaxed regulations compared to alternative loan options. Federal student loan consolidation programs also benefit students by offering them a lowered repayment amount and allow them to repay it over a longer duration of time. Students who have defaulted on the federal loans are also given a chance via the federal student loan consolidation program to start over and repay their debt without being declared a defaulter.
The only way you can re-consolidate a federal consolidation loan is by adding a new (or otherwise not already consolidated) federal loan. Therefore, if you have already consolidated your loans once and now have a new loan that was not part of the original consolidation, you can re-consolidate the loans.
Keep in mind that the rate on your re-consolidated loan will be different than that of your original consolidation loan.
When should I consolidate into more than one federal loan?
It may make sense to consolidate your loans into two separate consolidation loans. This situation arises occasionally when the method of calculating the interest rate on your consolidation loan gives more weight to loans that have rates higher than the capped consolidation rate or rounds up the interest. Here are a few examples:
- If you are consolidating PLUS loans, consolidate any PLUS loans taken out since July 1, 2006 separately from PLUS loans taken out prior to July 1, 2006.
- If you are consolidating loans with an interest rate that falls on an even 1/8th of a percentage rate (for example, 7.125%) – but is not greater than 8.25% – consolidate those loans separately.
- Consolidate any loans with an interest rate greater than 8.25% separately from other loans. This way, their higher rate won’t bring up the interest rates of the other loans.
Remember to keep these consolidation loans separate when working with your lender.
When should I consolidate my student loans?
If you only have newer federal loans (issued on or after July 1, 2006), then it doesn’t matter when you consolidate. These loans have fixed rates, so you won’t benefit by consolidating at a particular time when rates might be lower. If you have older federal student loans (issued before July 1, 2006), then timing can be important.
There are two general time periods to consider for federal loans issued before July 1, 2006:
- You have left school, but haven’t started repayment
- You are in repayment
Note: After July 1, 2011, borrowers can no longer consolidate while still in school.
For either older or newer federal student loans, if you’re still enrolled in the program for which you borrowed, you can’t consolidate. If you have graduated or left school, but have not started repayment, your federal student loans are in a grace period. Your grace period interest rate is lower than the one you will carry once you enter repayment. If you consolidate during your grace period, you could lock in that lower rate.
If you are in repayment, you may consolidate at any time. However, there are still some timing factors to consider. On July 1st of each year, interest rates for older federal student loans are reset. Keep an eye out for information about what the new rate will be.
Am I eligible to consolidate my federal student loans?
Requirements vary by each lender, so check with them for more specific information. Here are some general eligibility requirements:
- You have at least one outstanding qualifying federal loan.
- You have total outstanding federal education loan balances of $7,500 or greater. (This amount can vary from one lender to the next, and some lenders will consolidate lesser amounts.)
- None of your existing student loans are in default. If you are in default on a loan, you first need to make repayment arrangements with your lenders before they will consider consolidating them.
- You are a U.S. citizen.
- You are no longer enrolled in the program at least half-time. In other words – you must have graduated or left the program for which you borrowed.
What types of loans can I consolidate?
For a federal consolidation loan, you can include just about every loan issued under the federal programs, including:
- Subsidized Federal Stafford Loans (SS)
- Unsubsidized Federal Stafford Loans (US)
- Federal Parent Loans for Undergraduate Students (PLUS)
- Federal Graduate PLUS Loans
- Federal Supplemental Loans for Students (SLS)
- Federal Perkins Loans (PERK)
- Nursing Student Loans (NSL)
- Health Education Assistance Loans (HEAL)
- Auxiliary Loans to Assist Students (ALAS)
- Health Professions Student Loans (HPSL)
- Federal Insured Student Loans (FISL)
- Guaranteed Student Loans (GSL)
- Federal Unsubsidized Consolidation Loans (UCON)
- Federal Subsidized Consolidation Loans (SCON)
- Federal Direct Subsidized Student Loans (DSS)
- Federal Direct Unsubsidized Student Loans (DUS)
- Federal Direct Consolidation Loans (DCON)
- Federal Direct Parent Loans for Undergraduate Students (DPLUS)
- Federal Direct Graduate PLUS Loans
Types of Student Loan Consolidation